WRAPUP 2-US weekly jobless claims near 57-year lows, underscore labor market stability

The number of Americans filing new claims for unemployment ​benefits dropped to near 57-year lows last week amid low layoffs, suggesting a modest pickup ‌in ​job growth in October after September's underwhelming performance. The weekly jobless claims report from the Labor Department on Thursday, the most timely data on the economy's health, continued to show no material stress in the labor market from the oil price shock stemming from the US-Israeli war with Iran.

Economists say strong growth in profits amid robust domestic demand, and a smaller workforce against the backdrop of retirements ‌and an immigration crackdown by the Trump administration, were shielding workers from layoffs. There are, however, worries that tightening financial conditions and higher interest rates because of the drawn-out Middle East conflict could undercut the labor market next year.

"The administration's immigration policies may have tightened up the labor markets where companies are unable to find the help they need to produce their goods and services so they are holding tight to the workers they have," said Christopher Rupkey, chief economist at FWDBONDS. "Workers are suddenly irreplaceable in many industries." Initial claims for state unemployment benefits fell ‌6,000 to a seasonally adjusted 194,000 for the week ended October 17. Economists polled by Reuters had forecast 200,000 claims for the latest week. It was the sixth consecutive week that claims remained at or below the 200,000 mark. Claims are within striking distance ‌of the 189,000 level touched in mid-July, which was the lowest reading since 1969.

The claims data covered the period during which the government surveyed business establishments for the nonfarm payrolls component of October's employment report. The four-week moving average of claims, seen as a better measure of labor market trends as it irons out week-to-week volatility, fell between the September and October survey weeks. At face value that would suggest an improvement in payroll gains this month. Payrolls increased by 29,000 jobs in September after rebounding by 133,000 in August. Payrolls tend to underperform when Labor Day falls relatively late in the month as was the case in September. Economists continue to ⁠view the labor market ​as still in a "low-hire, low-fire" state.

But uncertainty from the war and ⁠tariffs on imports has stymied hiring. Stocks on Wall Street were trading lower. The dollar was little changed against a basket of currencies. US Treasury yields fell. HIRING REMAINS SLUGGISH

The claims report showed the number of people receiving unemployment benefits after an initial week of aid, a proxy for hiring, increased 25,000 to a still-low ⁠seasonally adjusted 1.728 million during the week ended October 10. The modest rise in the so-called continuing claims mirrored a similar pattern in recent years, and left some economists anticipating moderate job gains in October.

"Another month of soft payroll job growth in October would not be too surprising given the chance ​for more payback from recently stronger August employment," said Veronica Clark, an economist at Citigroup. "If the pattern of the last two years holds, continuing claims should peak in the next few weeks." Clark said she would be watching continuing claims for ⁠any signs of renewed weakening in demand for workers due to elevated rates or tighter financial conditions next year.

Still, others viewed continuing claims at current levels as consistent with a decline in the unemployment rate, which was at 4.2% in September. Reduced labor supply is keeping the jobless rate low, and it is not a sign of ⁠labor ​market tightness, with wage growth cooling. The absence of wage pressures allowed the Federal Reserve to focus on the inflation fallout from the Middle East conflict, economists said. The US central bank in September raised its overnight benchmark interest rate by 25 basis points to the 3.75%-4.00% range. Economists expect the Fed to stay pat at its meeting next week and hike borrowing costs again in December.

"The Fed has a free hand to hike rates next week if it deems monetary tightening necessary to soften demand and increase slack to ⁠ensure a return to the inflation target," said Carl Weinberg, chief economist at High Frequency Economics. "Its employment mandate is clearly satisfied." But others said the claims data was not giving the full picture of the labor market.

Recent college graduates and others who have ⁠limited or no work history are ineligible for unemployment benefits. Some long-term unemployed ⁠people may have exhausted their eligibility, which is limited to 26 weeks in most states, keeping continuing claims at low levels. The median duration of unemployment was 11.5 weeks in September, near a 4-1/2-year high.

"The low level of continuing claims only provides so much reassurance about the health of the labor market," said Oliver Allen, senior US economist at Pantheon Macroeconomics. "With most indicators of hiring still very ‌soft, the long-term unemployed and new entrants to ‌the labor market will find it difficult to attain a new job, suggesting the unemployment rate will creep up even if claims remain ​range-bound."